Conservatives say I'm liberal. Liberals say I'm conservative. I don't know what I am, but I do know I don't like what's going on with the economy.
The idea of bail-outs. Do they really help the people who need help?
I read an article on MSN that followed the economic difficulties faced by three families earning $32,000, $60,000 and $400,000. While I feel bad for their situations, I can see some decisions that obviously led them to the position they're currently in. Although honestly, I don't know if I could have done any better than the single mother earning $32,000.
$32,000 woman got into trouble with the increase in gas and food prices in 2005. Her gas prices more than doubled each week and food also got more expensive. She had been saving up to buy a house, but wasn't able to save too much even when everything was going well. She had a car loan that ate into her budget at about $200/month.
While that's the American way, I can't help but wonder if Gerd is right that we should never get car loans. Save up, buy a car that's functional, keep saving and eventually buy a nicer, newer car I guess. The problem with that is reliability...do you really want an unreliable car when you have 3 children? I think not. I'd probably have done the same thing. BUT, since she was saving...paying off her car might have been a better budget goal for her. If she'd been able to pay the car off before the gas prices skyrocketted she could have been better off.
In the end, she came out alright, she did rack up about $1000 in credit card bills. Now that gas prices have gone down, she's reduced her debt to $600. She's still struggling to save however, because interest payments take a chunk of her extra money. Again, I think credit cards are evil. It sounds like the stimulus plal would be a great thing for her. She just needs a little extra money to get over the hump.
$400,000 couple actually has my sympathy. Now that I live in a city center I understand their decisions. Me, I would have moved to a different part of town at least, but I could see the argument not to... There priorities are: live in the city, eat organic healthy food, educate kids. Living in the city is a way of life. When Gerd lived in Back Bay I thought the house prices were outrageous and was glad we found a place in the south end. I can't publish the amount because he's sensitive about how much it is, but it's still a lot. A lot a lot. Anyway, we can walk to everything we need and take the T pretty much anywhere else. The only thing sweeter would be a job for him in the city.
So these people living in New York are not much different than the woman who earns $32,000/year. They could choose to make different priorities, which is the biggest difference, but due to their geographic location those choices would have extreme costs (two hours commuting each day is just one of them). BUT, they could move to the lower east side, or chelsea, or one of the other less expensive areas in Manhattan. They're holding out for their neighborhood. After leaving Back Bay (and realizing how nice that location really way) I can understand the hold out, but my bets are that they give in if the prices don't drop lower anytime soon. After all, places like the South End have their charm too (AND we have a very nice roof deck).
$60,000 couple I have NO sympathy for. They bought their house in 2001 for $135,000 (in California...how? I thought it was an expensive place to live?) and could afford payments (I'm guessing around $1200/month). The mother was pregnant with her 3rd child WHILE they were buying the house and they aparently did not calculate into their budget the cost of child care. Humm. Okay, so not the end of the world, maybe that was their wiggle room (I think they said it was $400/month).
Because they had 3 children, they decided to buy an SUV. That's right a gas guzzling SUV during 2003. Payments for this SUV were $400/month and gas prices went up an additional $150/month. Now we're looking at something like $950 more per month than what they had originally qualified for on their original loan. So, what did they do? They refinanced. Their payments went up to $1600. As they continued to struggle and rack up credit card debt they decided to refinance again. This time their payment went up to $2000/month, which was about half of their income. That means that $2950 of $4000 was slotted for bills before food, electricity, or anything else.
Throughout the article the family continues to say that the value of the house declined past the mortgage amount. What that means is that they couldn't bail on the house. Once their expenses were too great, they couldn't get out of it. Well, they could have taken a more responsible path and not needed to bail on the house. As far as I'm concerned, this family did it to themselves.
Am I being judgemental, yes. I got paid $24.90 for two hours of substitute work last week. I have no problem paying taxes, but I think some clear criteria should be designed for fiancial assistance. I'd give all $2.10 cents in taxes I made to the woman with 3 children, but not a dime to the family who decided they needed an SUV and then defaulted on their mortgage.
2 comments:
I'm quite a bit skeptical about the bailouts. I'm a bit of a cynic, but if a teenager ran into debt and their parents bailed them out, they'd just keep running up the debt. At the same time, when your neighbor's house is on fire, you help out or yours could go up in flames too...
I do have a small bit of sympathy for the California family & their SUV decision. Minivans aren't much better. And even with my husband's boat of sedan, I don't know if we could physically buckle 3 carseats into the back seat. Once you have a 3rd kid, your automobile options are pretty limited--kids are in careseats until 8 years old these days.
The $1600 a month mortgage, that then went up even farther boggles the mind though. On a $135,000 house? If they financed the entire amount (with no money down) at 7% over 30 years, we're talking approx. a $900 a month payment, plus escrow. That $2000 a month payment at the same rate ought to buy $300,000 worth of house. How much in credit card debt did they manage to rack up?
This couple must have no financial sense at all.
What in the world could they have possibly bought to create that much debt?
And I misquoted the SUV price. They leased an SUV for $600/month. I don't necessarily have a problem with all SUVs (okay, maybe I do...but I try to be open to some options) but I think people should buy vehicles they can afford. A Toyota Rav is far less expensive, or a Honda CRV, a 2008 Hyundai Tucson is only about $17,000 used. The Ford Explorer even has a hybrid model that would cost less.
It's a crying shame it's so difficult to get an attractive, functional car that is economically a sound decision. The 8 seater hybrid Highlander, for instance, gets about 24mpg, which is about as good as it gets for the seats, but it's something like $45,000.
Anyway, I digress. I don't think they had 3 small children...it talks about how the oldest daughter had to drop out of cheerleading because it was too expensive. I may be wrong about the ages, and you're right, it's hard to fit a bunch of kids in a small car, but my impression is that they bought whatever they wanted, not necessarily whatever they could get by with.
If they leased, that means the car they got was probably even more expensive than $600/month and that they have no equity in the car...3 years later they'll owe the same amount if they decide to buy it, or have a large debt if they choose not to. And lets remember that they only make $60,000/year with 3 children. These were not sound financial decisions.
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